The Macrofoundations of Micro

This paper argues that there are two contending visions of macroeconomics: the micro vision--in which macroeconomics results are just the combination of results of atomistic individuals, and the macro vision--in which the interaction of atomistic individuals leads to such complexity that the aggregate results cannot be rationally deduced from the analysis of individual atomistic individuals. Using a macro vision, the economy cannot be analyzed contextually taking into account the constraints imposed on individuals by the macro institutions necessary to coordinate individuals behavior sufficiently so that markets can work. This macro foundation to micro approach offers a serious challenge to New Classical economics that other approaches to Keynesian macro do not.Macroeconomics

Application of Market Anti-inflation Plans in the Transition to a Market Economy

How can the former socialist countries' transition to a market economy be made less painful and more effective? We propose the use of incentive policies to stabilize prices and output. This would reduce former planned economies' tendency for output to fall and prices to rise as firms and workers take advantage of their market power. The policy allows firms individual pricing freedom while giving assurance that the price level will be stable. It also can break the vicious circle of reduced aggregate output by setting fixed level of output.Socialists

William Vickrey's Legacy: Innovative Policies for Social Concerns

William Vickrey, who won the Nobel Prize in Economics in 1996, was a moral and brilliant man. His major contributions to economics came from his desire to advance ways to decrease waste through creative pricing. The economic areas where he had the most impact are congestion pricing, tax reform and auctions. At the end of his life the unemployment issue dominated his research. Vickrey saw macroeconomics turning increasingly from full employment to stable prices as the dominant policy goal. Vickrey was deeply concerned that economists and politicians believed that price stability was a more laudable goal than full employment.Economics; Morals

Microfoundations

This paper argues that the microfoundations programme can be understood as an implementation of an underlying methodological principle—methodological individualism—and that it therefore shares a fundamental ambiguity with that principle, viz, whether the macro must be derived from and therefore reducible to, or rather consistent with, micro-level behaviours. The pluralist conclusion of the paper is not that research guided by the principle of microfoundations is necessarily wrong, but that the exclusion of approaches not guided by that principle is indeed necessarily wrong. The argument is made via an examination of the advantages claimed for dynamic stochastic general equilibrium models, the relationship between parts and wholes in social science, and the concepts of reduction, substrate neutrality, the intentional stance, and hypostatisation

The Future of Agent-Based Modeling

In this paper, I elaborate on the role of agent-based (AB) modeling for macroeconomic research. My main tenet is that the full potential of the AB approach has not been realized yet. This potential lies in the modular nature of the models, which is bought by abandoning the straitjacket of rational expectations and embracing an evolutionary perspective. I envisage the foundation of a Modular Macroeconomic Science, where new models with heterogeneous interacting agents, endowed with partial information and limited computational ability, can be created by recombining and extending existing models in a unified computational framework

Microfoundations

The paper argues that the microfoundations programme can be understood as an implementation of an underlying methodological principle, methodological individualism, and that it therefore shares a fundamental ambiguity with that principle, viz, whether the macro must be derived from and therefore reducible to, or rather consistent with micro-level behaviours. The pluralist conclusion of the paper is not that research guided by the principle of microfoundations is necessarily wrong, but that the exclusion of approaches not guided by that principle is indeed necessarily wrong. The argument is made via an examination of the advantages claimed for dynamic stochastic general equilibrium models, the relationship between parts and wholes in social science, and the concepts of reduction, substrate neutrality, the intentional stance, and hypostatisation

Assumption without representation: the unacknowledged abstraction from communities and social goods

We have not clearly acknowledged the abstraction from unpriceable “social goods” (derived from communities) which, different from private and public goods, simply disappear if it is attempted to market them. Separability from markets and economics has not been argued, much less established. Acknowledging communities would reinforce rather than undermine them, and thus facilitate the production of social goods. But it would also help economics by facilitating our understanding of – and response to – financial crises as well as environmental destruction and many social problems, and by reducing the alienation from economics often felt by students and the public